Paul L. Caron

Sunday, September 10, 2017

Bainbridge: Is Tax Avoidance Immoral? — A Catholic Perspective

Stephen Bainbridge (UCLA), Is Tax Avoidance Immoral? A Catholic Lay Perspective:

My friend and UCLA colleague Steven Bank [presented] a very interesting paper ... at a faculty colloquium, entitled When Did Tax Avoidance Become Respectable? ...

I'm neither a tax lawyer nor a theologian, but this got me to wondering what the Church taught on the subject. ... [A letter written by 11 heads of national Catholic Conferences says]:

The G8’s attention to tax evasion, trade and transparency is equally timely. The Catechism of the Catholic Church teaches: “Submission to authority and co-responsibility for the common good make it morally obligatory to pay taxes...” (No. 2240). It is a moral obligation for citizens to pay their fair share of taxes for the common good, including the good of poor and vulnerable communities, just as states also have an obligation to provide “a reasonable and fair application of taxes” with “precision and integrity in administering and distributing public resources” (Compendium of the Social Doctrine of the Church, No. 355).

I don't see anything there about tax avoidance. ...

Number 2240 further states that “Submission to authority and co-responsibility for the common good make it morally obligatory to pay taxes...” (For an argument that tax evasion is not sinful, at least in some cases, see McGee, Robert W., Is Tax Evasion Unethical?. Policy Analysis Paper No. 11. Available at SSRN: )

But tax evasion is not tax avoidance. Tax evasion is the illegal nonpayment or underpayment of tax. In contrast, as Bank explains, tax avoidance "usually involves employing legal maneuvers, sometimes called 'loopholes,' to reduce the amount a taxpayer owes." Does the Church condemn tax avoidance as it does tax evasion? ...

There are examples in the Bible of tax avoidance. Before David went out to fight Goliath he asked “How will the man who kills this Philistine and frees Israel from disgrace be rewarded?" (1 Samuel 17:26) He was told "The king will make whoever kills him a very wealthy man. He will give his daughter to him and declare his father’s family exempt from taxes in Israel.” (1 Samuel 17:25) So David had — among other reasons — a tax avoidance incentive for fighting the giant.

The Biblical passages on paying taxes, moreover, seem to say that tax evasion is a sin but no more. Saint Paul told the Romans, for example, that they paid taxes because "the authorities are ministers of God, devoting themselves to this very thing." (Romans 13:6) Hence, he exhorted the Romans:

Pay ... taxes to whom taxes are due, toll to whom toll is due, respect to whom respect is due, honor to whom honor is due. (Romans 13:7)

It says pay what taxes are due, not pay as much tax as you possibly can. There is no prohibition on seeking to minimize the amount of tax that is due. 

So, as far as I can tell, tax evasion is illicit, but tax avoidance is licit.

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I have to go there, but, Catholic Church, tax-exempt? I know what the net effect would be if each local parish had to pay some kind of income tax: They'd have to consider selling their real estate...

Posted by: MM | Sep 11, 2017 7:24:40 AM

When the rate of taxation is 35%, the size of the "loophole" is 65%.

Posted by: Joseph W. Mooney III | Sep 11, 2017 6:09:44 AM

It seems Stephen is picking up the mantle of the late-great Charlie Rice. Charlie once told me, "You have no moral obligation to obey the speed limit, but you have a moral obligation to pay the ticket."

Posted by: Jack Manhire | Sep 10, 2017 11:04:20 PM

"It is a moral obligation for citizens to pay their fair share of taxes ..." Would someone please provide the exacting metric of "fair share"?

Posted by: Tom N | Sep 10, 2017 2:43:20 PM